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06/06/24
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GBP Flat as BoE Wage Growth Expectations Drop
On Thursday, the British pound was down slightly, and GBP/USD traded at about 1.2771, down 0.12% for the day in the European session.
On Thursday, the Bank of England released a survey which indicated wage growth expectations for the next year have dropped sharply. The survey showed wage growth expectations in May were at 4.1%, down from April’s 4.6%. The indicator fell from 4.8% to 4.5% on a three-month average basis. The readings were both the lowest since May 2022, when the survey started.
The BoE expected that annual wage growth in May would drop to 5.25% by the end of the year, which isn’t compatible with an inflation target of 2%. If wage growth drops faster than anticipated, it will make it easier for the BoE to cut interest rates.
UK inflation has dropped to 2.3% in April from 11.1% in Oct. 2022, the lowest level since Sept. 2021. The final stage of bringing inflation down to the 2% target will likely be rocky and the central bank will likely deliver a rate cut before the target is reached.
The economy in the UK is showing some strength, which may complicate the BoE’s plans to reduce rates. The services, manufacturing, and construction sectors all grew in May.
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